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The Use of Checks and Other Noncash Payment Instruments in the United States. Geoffrey R. Gerdes and Jack K. Walton II, of the Board's Division of Reserve Bank Operations and Payment Systems, prepared this article. Thomas Guerin andAmin Rokni provided research assistance. Over the past several decades, the payments industry has undergone significant change. New electronic payment instruments have been introduced, and the means for making electronic payments have become increasingly available for use in everyday commerce. Further, the adaptation of technology has driven down the costs of processing electronic payments relative to check payments. Partial statistics and anecdotal evidence suggest that consumers and businesses are increasingly using electronic payments. Nevertheless, the paper check continues to be the most commonly used type of noncash payment instrument in the U.S. economy. Checks' share in noncash payments has been declining, however, and recent evidence suggests that the total number of checks paid has been declining as well. To shed light on the use of checks and other noncash payment instruments in the United States, the Federal Reserve recently sponsored three related surveys collectively referred to as the Retail Payments Research Project. The survey data were used to estimate the number and value of payments made in 2000 using checks and several types of electronic payment instruments as well as to study the characteristics of individual checks paid in 2000. The magnitude and diversity of the samples also enabled a comparison of check use across type and size of depository institution and across geographic regions. In addition, the data provided a basis for looking at changes in noncash payments since 1979, when the Federal Reserve collected data on checks for an analysis of the check-clearing system, and since 1995, when the Federal Reserve collected data on checks for a report to the Congress on funds availability and check fraud. The surveys are described in detail in the appendix. N O T E . Darrel Parke and Samuel Slowinski, of the Board's Division of Research and Statistics, provided valuable assistance with the production and interpretation of the statistical estimates.[endofnote.] Taken together, the data show that an estimated 32.8 billion checks were paid in the United States in 1979, 49.5 billion in 1995, and 42.5 billion in 2000 (chart 1). The exact year in which check use peaked is unknown, but it appears that the number paid began to decline sometime in the mid-1990s. By 2000, retail electronic payments had gained considerable ground. Nonetheless, checks remained the predominant type of retail noncash payment. Checks also continued to account for a large proportion of the total value of retail noncash payments in 2000, though the real value of total checks paid had declined since 1979. OVERALL TRENDS IN THE USE OF CHECKS. In the United States, most noncash payments are made using checks, credit cards, debit cards, and the electronic payment system called the automated clearinghouse (ACH)—collectively referred to as retail noncash payments. Consumers, businesses, [note: through or at a depository institution or a federal, state, or local government entity, including cashiers and certified checks, travelers checks, money orders, and rebate checks. The ACH is an electronic payments network that enables the processing of credit and debit payments, such as payroll and prearranged bill payments, between depository institutions.[endofnote.] Chart 1. Number of check and retail electronic payment transactions, selected years. [bar graph plotting four data: retail ACH, credit card, 5 debit card, andwas check. In 1979 check about 33about billion, credit card about billion. 1995, check was about 49about billion, debit card billion, credit card 10 billion, retail ACH about 32 In billion. In check billion, debit card about 952000, billion, creditwas card about4216 billion, retail ACH about billion.] and acceptability of alternatives to cash influenced the proportion of payments made with retail noncash Number: Number: Value: Value: instruments. From 1979 to 2000, the number of retail Type of payment Billions of Percent of Trillions of Percent of noncash payments grew approximately 3 percent a payments total dollars total year, about the same as the rate of growth of real Check 42.5 59.5 39.3 84.4 GDP. Hence, both the number of retail noncash payRetail electronic ments and the amount of economic output roughly payments 28.9 40.5 7.3 15.6 Debit card 8.3 11.6 .3 .7 doubled over the period. Over the same period, the Credit card: General-purpose 12.3 17.2 1.1 2.3 number of households increased from 78.8 million to 2.7 3.8 .2 .3 Credi 105.5 million, for an annual rate of growth of almost Retail ACH 5.6 7.9 5.7 12.2 1.5 percent. Total 71.5 100.0 46.6 100.0 The growth in retail noncash payments leading up NOTE. In this and subsequent tables, components may not sum to totals, and calculations may not yield averages and percentages shown, because of to the mid-1990s may have resulted from a general rounding. increase in payments, an increase in the number of Note 1aboutcheck:Includes checks paid by depository institutions, U.S. Treasury checks, and postal money orders. households with checking accounts, and the replaceNote 2about General purpose credit cards: ment of some cash payments by noncash payment Includes co-branded credit cards, charge cards, co-branded charge cards, alternatives. About 9.2 billion more retail electronic secured credit cards, travel and entertainment cards, commercial cards, and new payment technologies that route transactions through the card associations' payments were made in 1995 than in 1979. The networks. Note atelabelcreditcards:Includes retailer cards, oil company cards, third-party number of checks 3aboutprivalso rose considerably over the fleet cards, and cards issued by third-party receivable period. In fact, about 16.7 billion more checks were Note 4onretailACH:Excludes ACH transactions classified as cash concentration and disbursement, which, for purposes of this study, are not considered payments. paid in 1995. However, the number of checks paid as a share of all retail noncash payments declined, from 85.7 percent to 77.1 percent. and government entities made about 71.5 billion The decline in the number of checks as a share of retail noncash payments in 2000 (table 1). The total retail noncash payments continued over the period value of these payments was about $46.6 trillion, 1995 to 2000, and the number of checks paid declined approximately four and three-fourths times U.S. gross as well, from an estimated 49.5 billion in 1995 to domestic product (GDP) for that year. Checks were 42.5 billion in 2000. (In comparison, the annual the predominant type of retail noncash payment, number of electronic payments increased 14.2 billion accounting for 59.5 percent of these payments by over the period.) Whether the number of checks paid number. By comparison, checks constituted 85.7 perin nearby years was higher or lower than in 1995 is cent of retail noncash payments in 1979 (table 2). unknown. However, these estimates suggest that the Although the number of check payments increased number of checks paid peaked during the mid-1990s. from 1979 to 2000, the number of checks as a share of retail noncash payments declined about 26 percentage points. [note: from 18.7 percent in 1989 to 13.2 percent in 1998. See Arthur B. Growth in overall economic activity and populaKennickell, Martha Starr-McCluer, and Brian J. Surette, ''Recent tion led to a general growth in payments, including Changes in U.S. Family Finances: Results from the 1998 Survey of cash payments, between 1979 and 2000. Such factors Consumer Finances,'' Federal Reserve Bulletin, vol. 86 (January 2000), pp. 1-29.[endofnote.] as technological change and increased availability Table 1. N u m b e r a n d v a l u e o f retail n o n c a s h p a y m e n t s , 2 0 0 0 Table 2. N u m b e r a n d rate o f g r o w t h o f retail n o n c a s h p a y m e n t s , selected y e a r s Number Number(billions): (billions): Number (billions): Growth Growth (percent, (percent, annual Growth (percent annual Type of payment rate): 1979-2000 annua;rate):1995-2000 1979 1995 2000 Check Retail electronic payments Debit card Credit card General-purpose Private-label Retail ACH 32.8 5.5 .0 49.5 14.7 1.4 42.5 28.9 8.3 2.6 6.3 -3.0 14.6 41.8 1.5 3.8 .2 7.8 2.6 2.8 12.3 2.7 5.6 10.9 -2.3 19.0 9.5 .9 15.1 10.5 -1.6 18.0 Total 38.3 64.2 71.5 3.3 2.2 3.0 NOTE. See table 1, notes 1-4. na 1.2 8.2 SOURCES. Federal Reserve; National Automated Clearing House Association; Nilson Report, selected issues; and ATM & Debit News, EFT Data Book, 2002 edition. The apparent decline in the number of checks paid between 1995 and 2000 was likely not driven by a change in the general level of economic activity. Both years were part of an economic expansion that began in the early 1990s and peaked in March 2001 (according to the National Bureau of Economic Research), and spending by consumers and businesses, which make the predominant number of payments in the economy, increased during the period. Instead, the decline in check use appears to have been related to increased use of electronic payments by consumers and businesses. Although the number of checks paid appears to have declined during the latter part of the period, the number increased on net from 1979 to 2000. The value of checks paid, however, decreased—from an estimated $50.7 trillion in 1979 to $39.3 trillion in 2000 (both in 2000 dollars; table 3). The declines in overall check value and related measures (the estimated average value of a check, for example, declined from $1,544 in 1979 to $925 in 2000) provide supporting evidence that electronic payments have replaced checks for at least some types of transactions. In addition, most large-value payments for settlement of financial market transactions that were once made by check are now made electronically, many using the large-value funds transfer systems (such as Fedwire and CHIPS). Such payments are discussed separately because they are not considered retail noncash payments. VARIATIONS IN CHECK PAYMENTS ACROSS DEPOSITORY INSTITUTIONS. Table 3. Number and value of checks paid, by type of institution, selected years Number (billions) Value (trillions of dollars) Memo: Transaction deposits (billions of dollars) 1979: Commercial banks 1979:Credit unions 1979:Savings institutions 31.4 .3 .3 n.a. n.a. n.a. 744 4 4 1979:All 32.0 49.6 752 .8 1.1 1979:Total 32.8 50.7 1995: Commercial banks 1995:Credit unions 1995:Savings institutions 42.0 3.5 3.4 n.a. n.a. n. a. 855 34 64 1995:All 48.9 n.a. 953 Year and type of institution 1979:U.S. 1995:U.S. depository institutions Treasury checks and postal money orders depository institutions Treasury checks and postal money orders 1995:Total 2000: Commercial banks 2000: All depository institutions .7 .6 49.5 n.a. 33.3 4.7 4.0 36.6 .9 1.6 42.0 39.0 2000: 2000: 602 51 62 715 2000: postal money orders .5 .3 42.5 39.3 2000: NOTE. All values are in 2000 dollars. n.a. Not available. . . . Not applicable. Trends across Depository Institutions. Credit unions and savings institutions generally did not offer checking accounts (or their equivalent) until Almost 15,000 depository institutions in the United the late 1970s. Since that time, transaction deposits States—commercial banks, credit unions, and savat, and the number and value of checks paid by, these ings institutions—provide checking or share draft institutions have grown briskly. accounts. However, the distribution of transaction Despite the overall decline in the number of checks deposits and the number and value of checks paid paid between 1995 and 2000, the number paid by are skewed toward a small number of very large 4 credit unions and savings institutions continued to institutions. grow (table 3). These institutions together paid an more thanvalues [note: estimated 14 percent of checks in 1995 but 3]. All historical dollars. Adjustments to historical values were made using the implicit 20 percent in 2000. The 1.8 billion increase in the price deflator for GDP. Given that prices have roughly doubled since number of checks paid annually by these institutions, 1979, $1 in 1979 was equivalent to about $2.05 in 2000. An estimate however, was more than offset by a dramatic decline of the value of checks paid in 1995 could not be constructed.[endofnote.] [note: 4]. Depository institution subsidiaries holding of about 8.7 billion in of themultibank number paidcompaannually by nies are treated as a single depository institution. Commercial banks commercial banks. include branches of foreign banks; checks paid by the latter group constitute a very small proportion of the total number and value of checks paid. Savings institutions include savings and loan institutions, cooperative banks, and savings banks. Transaction deposits are deposits held in transaction accounts—types of accounts for which the number of payments is not restricted by regulation. Although payments may be made from other types of depository institution accounts, such as savings accounts, such payments are limited by regulation to six per month.[endofnote.] [note: independent evidence from the Survey of Consumer Finances conducted periodically by the Federal Reserve: The share of households that reported using credit unions for checking accounts rose from 10.5 percent in 1989 to 17.4 percent in 1998. The share that reported using savings institutions for checking accounts declined, however, from 20.2 percent to 11.5 percent, perhaps suggesting that the increase reported in this Differences across Depository Institutions in 2000. However, looking at the number and value of checks paid in terms of the value of an institution's transaction deposits can give some indication of the importance—or intensity—of check use. Specifically, the relative intensity of check use can be approximated as the number and value of checks paid per $1,000 of transaction deposits—the number-todeposits ratio and value-to-deposits ratio respectively. In 2000, these ratios appear to have varied by type and size of depository institution (table 4). The largest commercial banks, for example, had the highest value-to-deposits ratio among all categories of depository institutions, likely reflecting the high average value of checks paid by these institutions. In contrast, these banks had a number-to-deposits ratio similar to those of the smallest banks and small savings institutions. Midsize banks had the lowest number-to-deposits ratio and a value-to-deposits ratio below the ratios for the largest and smallest banks. These results suggest that checks may be used less intensively at midsize commercial banks than at institutions in other categories. The average value of checks paid in 2000 varied by type and size of depository institution, presumably because of the mix of business and consumer customers served by different institutions. Large commercial banks and some large savings institutions serve corporations and other businesses as well as consumers. Because large corporations tend to make larger-value payments, the average value of checks paid by depository institutions that serve them tends to be larger. Community banks (small commercial banks and savings institutions) typically serve smaller businesses and consumers, so the average value of checks they pay is smaller. Credit unions overall have the smallest average check value because they generally provide accounts only to consumers (table 4). The importance of check payments relative to other types of payments at individual depository institutions cannot be known precisely because data on the proportion of total payments made using checks at individual depository institutions are unavailable. The amount of transaction deposits held by a depository institution can be affected by both the willingness of account holders to hold idle balances and the institution's use of sweep accounts to reduce the balances their customers hold overnight in transaction accounts. in c h e c k u s e at s a v i n g s i n s t i t u t i o n s w a s d u e t o i n c r e a s e d u s e b y businesses. T h e share that reported using commercial banks increased s l i g h t l y , f r o m 6 8 . 6 p e r c e n t t o 6 9 . 5 p e r c e n t . S e e D e a n F. A m e l a n d M a r t h a S t a r r - M c C l u e r , " M a r k e t D e f i n i t i o n in B a n k i n g : R e c e n t E v i d e n c e , ' ' Antitrust Bulletin, v o l . 4 7 ( S p r i n g 2 0 0 2 ) , p p . 6 3 - 8 9 .[endofnote.] [note: b u s i n e s s purposes. In 1998, about 3.8 p e r c e n t of small b u s i n e s s e s u s e d a c r e d i t u n i o n f o r c h e c k i n g . S e e M a r i a n n e P. Bitler, A l i c i a M . R o b b , a n d John D. Wolken, ''Financial Services U s e d b y Small Businesses: Evidence f r o m the 1998 Survey of Small Business Finances,'' Federal Reserve Bulletin ( A p r i l 2 0 0 1 ) , v o l . 87, p p . 1 8 3 - 2 0 5 .[endofnote.] Table 4. 6]. I n s o m e c a s e s , h o w e [note: g r a m s . W h o l e s a l e sweeps, w h i c h h a v e b e e n offered to business cust o m e r s since the 1970s, k e e p c u s t o m e r s ' n o n - e a r n i n g assets low, b y m o v i n g f u n d s b e t w e e n n o n - i n t e r e s t - e a r n i n g d e m a n d d e p o s i t s , s u c h as transaction deposits, and interest-earning m o n e y market mutual f u n d s Checks paid by and transaction deposits of depository institutions, by type and size of institution, 2000 Deposits: Transaction Deposits: Transaction Deposits: Transaction Checks paid: Memo: Memo: Checks paid: Checks paid: Type and size of institution (transaction deposits in millions of dollars) Number of institutions Number (billions) Value (trillions of dollars) Average value (dollars) Percent of interbank checks returned Average value of interbank checks returned (dollars) Percent on-us Amount (billions of dollars) Numbertodeposits ratio Checks paid: ValueValueChecksNumberpaid: tototodeposits assets assets ratio ratio ratio Commercial banks 250-60,000 50-250 0-50 6,852 170 1,104 5,578 33.3 23.6 4.3 5.4 36.6 29.6 3.4 3.6 1,099 1,254 790 663 .79 .82 .72 .75 859 964 646 595 34 38 26 26 602 411 99 93 55 57 43 58 60,682 72,090 34,106 38,523 53 54 48 53 58,256 67,681 37,897 35,386 Credit unions 75-2,000 0-75 6,551 106 6,445 4.7 1.2 3.5 .9 .3 .6 186 208 178 1.03 .98 1.05 244 305 223 6 6 6 51 16 35 93 75 101 17,254 15,621 18,028 111 96 117 20,613 20,068 20,845 Savings institutions 200-6,500 0-200 1,293 35 1,258 4.0 2.2 1.8 1.6 .9 .7 389 413 360 .99 1.22 .67 507 533 444 18 14 22 62 30 31 65 72 58 25,226 29,567 20,985 34 36 32 13,296 14,752 11,706 14,696 42.0 39.0 928 .85 700 29 715 59 54,522 53 49,539 All institutions NOTE. Excludes U.S. Treasury checks and postal money orders, which are paid by the Federal Reserve Banks. Transaction deposit ranges may include amounts equal to the upper boundary but do not include amounts equal to the lower boundary. Institutions without transaction deposits are not included. Numbertodepositsratio:Number of checks paid per $1,000 of transaction deposits. Valuetodepositsratio:Value of checks paid per $1,000 of transaction deposits. Numbertoassetsratio:Number of checks paid per $1,000,000 of assets. Valuetoassetsratio:Value of checks paid per $1,000,000 of assets. Che The use of such deposits in measures of the relative intensity of check use may exaggerate the intensity of check use at the largest institutions because such institutions also tend to use sweep accounts most extensively. An alternative approximation that may control for various effects on transaction deposits is the number and value of checks paid per $1 million of assets—the number-toassets ratio and value-to-assets ratio respectively. While the number-to-assets ratio exhibits the same general U-shaped pattern as the number-to-deposits and value-to-deposits ratios, the value-to-assets ratio for commercial banks does not. Instead, the value-toassets ratio increases as the size category of commercial banks increases. Whether viewed in terms of transaction deposits or assets, credit unions stand out as the type of institution at which checks are used the most intensively by number. The intensity of check use by both number and value declines as size increases, suggesting that check use is less intense at larger credit unions. Without directly measuring the number and value of all payments initiated by depository institutions, approximating the intensity of check use is difficult because of the complexity of factors affecting the data. Nevertheless, the results presented here provide preliminary evidence that the intensity of check use does vary by type and size of depository institution. The average number of check payments per transaction account can be estimated for credit unions because data are available on the number of transaction (share draft) accounts at these institutions. Because credit unions generally do not offer business accounts, the number of checks (share drafts) paid per account is an approximation of the number of checks paid per consumer account. The average number of checks per account varies across these institutions (chart 2). Differences in payment services offered may explain some of the variation. The monthly average number of checks paid per share draft account in 2000 (about fifteen) was somewhat lower than the monthly average number of checks estimated to have been written by households in that or other financial instruments. Retail sweeps, which first appeared in 1994, move idle funds f r o m transaction deposit accounts to specialpurpose m o n e y market deposit accounts ( M M D A s ) and return them to transaction accounts only as needed to cover payments, limiting the number of withdrawals f r o m the M M D A s to six per month in accordance with regulatory restrictions. This practice does not adversely affect the account holder but allows the depository institution to reduce its non-interest-earning assets. Both types of sweep programs reduce the amount of funds depository institutions must hold to meet their reserve requirements. See Cheryl L. Edwards, ''Open Market Operations in the 1990s,'' Federal Reserve Bulletin, vol. 83 (November 1997), pp. 859-74, for a discussion of sweep programs.[endofnote.] Chart 2. Distribution of credit unions by average number of sh drafts paid monthly per account, 2000 [bar graph. About 4.5% unions had anofaverage of 0 to 5had share drafts per account. About 18% unions an average ofof 5 credit tohad 1020% share drafts account. About 43% of credit unions an average ofper 10credit to 15 share drafts per account. About of credit unions had an average of 15 to 20 drafts per account. About 11% of credit unions had an average of 20 to 25 share drafts account, About 1.5% of credit unions had an average of 25 to 30had share per account. 4% of creditper unions overdrafts 30 share drafts perAbout account.] NOTE. Ranges may include the upper boundary but do not include the lower boundary. year (about nineteen; chart 3). One reason for the difference is that some households write checks on accounts at more than one institution. "On Us " Checks. A check that is deposited in or cashed at the same depository institution on which it is drawn is referred to as an on-us check. An estimated 29 percent of checks paid in 2000 were on-us checks (table 4), about the same as in 1979. The apparent absence of an increase in the aggregate share of on-us checks is surprising in light of the consolidation of the banking industry that has occurred since 1979. When institutions merge, the Chart 3. Average number of retail noncash payments per household per month, 2000 [bar graph. had12. about 19 card retailhad noncash per household per month. Debit aboutpayments 7. Credit card checks had about Retail ACH had about 2.] probability that a check written by a customer of one of the institutions will be an on-us check for the new institution generally increases; the increase is large if the institutions that merged tended to serve customers that wrote checks to each other, though not so large if they tended to serve customers that did not. If the merger is between institutions in different geographic areas, and assuming that most checks are local, the effect of the merger on the proportion of on-us checks is small. That the share of on-us checks remained virtually unchanged from 1979 to 2000 as extensive consolidation of depository institutions both within and across regions was taking place suggests that other, behavioral changes in checkwriting offset the effects of consolidation. One such change likely was the way account holders obtain cash: In the 1970s, account holders commonly obtained cash by cashing checks at the counter of their own banks; since then, the use of ATMs to obtain cash has increased dramatically, reducing the use of checks for this purpose. Several factors in addition to the effects of consolidation or banking concentration may affect the probability that a check paid by a particular institution is an on-us check. These include the extent of branching, the range of customers served, and the extent of business activity of account holders with nonlocal payment counterparties or financial institutions. A comparison of the proportions of on-us checks paid in 2000 reveals some patterns among depository institutions of different types and sizes (table 4). Among commercial banks, the proportion of on-us checks was greater for larger institutions than for smaller institutions. Among credit unions, however, no relationship between size and proportion of on-us checks was evident; as a group, credit unions had the smallest share of on-us checks, consistent with the finding that in 2000, the share of consumer checks for which the payee was also a consumer was relatively small (23 percent). The estimated proportion of on-us checks for small savings institutions was large relative to the proportion for large savings institutions, possibly because of the types of communities the smaller institutions serve. In fact, many community banks reported a large share of on-us checks. The 1979 study also found a large share of on-us checks among community banks. [note: scope of this article; a simple cross-sectional regression of the share of on-us checks on the logarithm of transaction deposits and the number of own-bank branches revealed no significant relationship between the number of branches and the share of on-us checks.[endofnote.] Returned Checks Because an account has been closed, funds in the payer's account are insufficient, or another reason, some checks presented to a paying institution are returned unpaid to the collecting institution. An estimated 251 million interbank (non-on-us) checks were returned in 2000, about 0.85 percent of interbank checks paid, or 8.5 checks out of every 1,000 interbank checks paid (table 4). This estimate is an upper bound on the number of returns, as some checks may be returned more than once, leading to some double counting. The estimated proportion of checks that are returned unpaid appears to vary by type and size of depository institution. Credit unions as a group had the highest return rate (10.3 checks returned for every 1,000 paid), suggesting that interbank checks written by consumers are returned more frequently than are those written by businesses. The estimated average value of a returned check in 2000 was $700. VARIATIONS IN CHECK USE BY REGION AND DEGREE OF URBANIZATION. The size and diversity of the sample of depository institutions were sufficient to estimate the number and value of checks paid in 2000 for four broad regions of the country—Northeast, South, Midwest, and West. The apparent variation among regions can be explained in part by population size and level of economic activity (table 5). Differences persist after controlling for those variables, however, an indication that regional differences may be associated with other factors, such as the availability of and willingness to use payment instruments other than checks. By number of checks paid per capita, the Midwest led the regions, followed by the South, West, and [note: institution, as the payer and payee are using the same institution; an on-us check could be returned unpaid to the payee, however. The surveyed depository institutions reported only the number and value of checks returned to other institutions. The percentage of returned checks was computed as the number ofreturned checks divided by the difference between the number of checks paid and the number of on-us checks. (As a share of total checks paid, interbank returned checks accounted for an estimated 0.60 percent.)[endofnote.] [note: may have reduced the incidence of multiple returns of the same check by helping collecting banks re-present checks when there is a greater likelihood of sufficient funds in the account on which the check is drawn.[endofnote.] 8]. A complete analysis of the effects of [note: was estimated as the sum of the gross products of the states making up the regions. Gross state product is a measure of state output similar to GDP.[endofnote.] Table 5. Number and value of checks paid by depository institutions, by location of deposits, 2000 Number: Number: Location of deposits By region: Northeast 4 By urbanization: Urban Number of institutions Value: Total (billions) Per capita Per $1,000 of output 1 Numbertodeposits ratio 2 2,417 55 2,362 7.1 3.6 3.5 132.6 3.3 46.0 40.2 54.0 9.1 7.0 2.1 169.8 4,841 92 4,749 15.3 4.9 10.4 By 152.8 4.7 region: 61.9 59.6 63.1 14.6 5.7 9.0 5 South 145.8 5,396 94 5,302 10.8 4.1 6.8 By 168.4 5.0 region: 61.6 51.9 69.4 2,182 72 2,110 8.8 4.2 4.6 10,173 5,970 33.3 8.7 Byregion: 138.5 W e s t 7 3.7 145.3 By 167.0 64.1 69.1 60.1 57.6 urbanization: 63.8 Total (trillions of dollars) capita (thousands of dollars) Per $1,000 of output 1 Valuetodeposits ratio 3 Memo: Transaction Average Number: deposits per (billions check of (dollars) dollars) na na154 na na 89 4,233 58,909 Northeast: 77,883 Northeast: 32,763 1,280 1,938 606 4,467 South: South: 59,096 68,824 54,242 955 1,155 860 6 8.0 Midwest123.9 4.4 3.6 3,683 45,362 Midwest: 56,387 Midwest: 36,570 736 1,086 527 7.3 4.0 3.3 115.5 3,102 West: West: 33.0 6.0 144.2 114.0 Rural 65 na na na na 247 82 165 na na176 na na 78 98 na na na na na 53,437 65,235 43,959 834 944 732 57,215 43,575 992 683 na 137 61 76 578 137 NOTE. Includes only checks paid by commercial banks, savings institutions, note and credit unions. Multiregion institutions are those that have deposits in more sey, New York, Pennsylvania, Rhode Island, and Vermont. than one region; single-region institutions have deposits in only one region. note Urban areas are those defined as metropolitan statistical areas or New England Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklacounty metropolitan statistical areas; rural areas are those defined to be outside homa, South Carolina, Tennessee, Texas, Virginia, and West Virginia. urban areas. Figures for the number of institutions do not sum to the total Note number of institutions because some institutions operate in more than one region Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. or in both urban and rural areas. Note note 1 per $1000 of output: Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. Output is measured as the sum of the gross products of the states in the region. SOURCES. Federal Reserve; and Department of Commerce, Bureau of EcoNote 2 number and Bureau to See table 4, note nomic Analysis of deposits the Census. ratio: Note 3 value to deposits ratio: See table 4, note Northeast. By value of checks paid per capita, the Northeast led, followed by the South, Midwest, and West. Thus, no region stood out as the greatest user of checks by both number and value. Nonetheless, some differences among regions appear to have been large. For example, the number of checks paid per capita was 27 percent higher in the Midwest than in the Northeast, and the value of checks paid per capita was 47 percent higher in the Northeast than in the West. The Northeast had the lowest number of checks per capita, the lowest number of checks per $1,000 of output, and the highest average check value. In addition, the Northeast had the lowest number-to-deposits ratio. The smallest region as measured by area and population size, the Northeast includes New York State, which is home to a significant concentration of financial and corporate activity. This activity appears to have had a large effect on checks and deposits in the region. For example, average check value for the region was more than 20 percent lower when New York State was excluded from the calculation, bringing the average value for the rest of the Northeast closer to the average values for the other regions. Interestingly, the average check value and value-todeposits ratio for depository institutions operating only in the Northeast (single-region institutions) were considerably lower than for institutions operating in the Northeast and at least one other region (multiregion institutions). Among single-region institutions, those in the Northeast and Midwest had the lowest average check values and value-to-deposits ratios, suggesting that these institutions were used less frequently for paying larger-value business checks. Correspondingly, the very high average check value and value-to-deposits ratio for multiregion institutions operating in the Northeast suggest that these institutions were used more often than others for paying such larger-value business checks. The Midwest, the region with the largest number of depository institutions per capita, had the highest number of checks per capita. The West had the smallest value of checks per capita and per $1,000 of output, possibly indicating that payers in the region, perhaps led by businesses, had a greater propensity to replace higher-value checks with electronic payments. The South had the highest value of checks per $1,000 of output and a value-to-deposits ratio similar 6: 7 Midwest: West: to that for the Northeast, suggesting that checks were used by businesses more often in these two regions than in the other regions. Almost 80 percent of checks were paid using transaction deposits located in urban areas (table 5). On a per capita basis, however, the number of checks paid was more than 14 percent higher in rural areas, perhaps because of lesser availability of or willingness to use electronic payment alternatives. The average value of rural checks was about 30 percent lower than that of urban checks. by consumers and the corresponding decline in the share written by businesses and governments partly explain the decline in the real value of checks over time. Checks can be classified according to the broad purpose of the payment—point-of-sale (POS) (generally, in-person purchases of merchandise at such locations as grocery and office-supply stores); income (payments to consumers by businesses and governments, including payroll, rebates, refunds, and dividends); remittance (payments of one-time or recurring bills); and casual (consumer-to-consumer payments). The value of checks paid in 2000 varied by purpose of payment (table 6). For example, nearly three-fourths of POS checks were for less than $100. In contrast, slightly fewer than half of casual-payment checks were for less than $100, and nearly as many were for $100 to $1,000. DISTRIBUTION OF CHECK PAYMENTS BY PAYER, PAYEE, AND PURPOSE. The share of checks written by consumers appears to have increased somewhat since the 1970s. According to the 2000 survey, consumers wrote about 58 percent of the sampled checks for which the payer could be classified, with business and government checks making up the rest. Studies by the Bank Administration Institute and Arthur D. Little, Inc., in the early and mid-1970s that classified check payments by payer and payee found that consumers wrote about half of all checks. The increase in the share written Comparison of the results from the 1970s with the results for 2000 shows that, combined, the share of checks written by consumers at the point of sale and for the payment of bills decreased about 13 percent over the period, with a proportionate increase in consumer-to-consumer check payments. Consumers apparently, over time, replaced checks written at the point of sale and for bill payment with electronic payments to a greater extent than they replaced [note: (MSAs) or New England county metropolitan statistical (NECMAs), and rural areas as all other areas.[endofnote.] payer and payee categories.[endofnote.] System: A Quantitative Description'' (Chicago: Bank Administration Institute, 1970), and Arthur D. Little, Inc., ''The Consequences of Electronic Funds Transfer: A Technology Assessment of Movement toward a Less Cash/Less Check Society,'' prepared for the National Science Foundation, Research Applied to the National Needs (RANN), under contract NSF-C844 (Government Printing Office, 1975).[endofnote.] Table 6. 12]. Urban areas were de areas [note: checks to pay bills. Another 40 percent were written at the point [note: 13].ofApproximately 11 perce sale (of which 80 percent were written to make retail purchases and about 20 percent were written for cash), and about 10 percent 14]. wereSee L.M. Fenner and [note: written to other consumers. In 2000, 36 percent of checks written by consumers that could be classified by purpose were for bill payment and 29 percent were written at the point of sale; an additional 13 percent were identified as either for bill payment or written at the point of sale. The remaining 23 percent were consumer-to-consumer payments. (Only 1.6 percent of checks written by consumers in 2000 could not be classified by purpose.)[endofnote.] Distribution of check values, by payer, payee, and purpose, 2000 Percent Payee: Payer: Check value (dollars) Consumer 0-100 100-1,000 1,000-2,500 2,500-10,000 More than 10,000 Total Payee: Payer: Purpose: Purpose: All checks Business 1 Consumer Business 1 Remittance 3 Income 4 48.1 38.7 6.3 5.3 1.7 64.0 30.5 3.0 2.1 .4 25.3 50.6 11.2 9.5 3.4 32.2 52.4 8.9 5.6 .9 55.8 32.1 5.2 4.8 2.0 72.1 21.7 2.9 2.7 .7 51.8 36.0 5.9 4.3 2.1 21.7 59.6 11.1 6.6 1.1 48.6 41.0 5.6 4.2 .6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NOTE. Check value ranges may include checks written for amounts equal to Note 3 remittance: Payments from any type of payer to either the upper boundary but do not include checks written for amounts equal to the payee that did not occur at the point of sale. lower boundary. Note 4 income: Payments to an individual from either a busin Note1Business:Includes state and local government checks, which constituted only a Note 5 casual: Payments from one individual to another. small percentage of checks paid by and to businesses. Note2;POS:Point-of-sale payments from any type of payer to either a business or a government payee. checks written to pay other consumers. In 2000, consumer-to-consumer payments accounted for about 23 percent of checks that could be classified as having been written by consumers. The average value of checks written in 2000 was considerably greater than the average value of credit and debit card payments (table 7). In contrast, the average value of ACH payments, which are used more often for larger-value, recurring payments such as mortgages, credit card bills, and payroll, was somewhat higher than the average value of check payments. Despite the high average value of checks relative to debit and credit card payments, many checks in 2000 were for small amounts (table 7). About 29 percent were for less than the average value of debit card payments ($42), and 85 percent were for less than the average check value of $925. In comparison, approximately 95 percent of checks written in 1979 were for less than the average check value that year of $1,544. The proportion of checks for less than $500 decreased from 85 percent in 1979 to 77 percent in 2000. However, the proportion of the highest-value checks (those above $500,000) also decreased. Thus, most of the decline in the average (and total) value of checks from 1979 to 2000 was due to the replacement of the highest-value checks with electronic payments. ELECTRONIC PAYMENTS. The number of retail electronic payments made in 1979 was small, accounting for about 15 percent of all retail noncash payments (table 2). Since then, the number made annually has grown at a high rate. Over the latter part of the period, the growth in electronic payments accelerated, nearly doubling between 1995 and 2000 and accounting for 40 percent of all retail noncash payments in 2000. Most of the growth was due to a dramatic increase in the number of debit card payments. Payments by Households. An estimate of the average number of check payments made monthly by a household in 2000 can be estimated from data collected in the survey on check use. Because of the nature of the data from the electronic payments survey, however, a household average for retail electronic payments cannot be estimated without making assumptions. A large proportion of credit and debit card payments are likely made by households, although businesses also use credit Table 7. Average value of retail noncash payments, 2000 Type of payment Check Debit card Credit card: General-purpose Retail ACH Average value (dollars) Percent of checks below average 925 42 85 29 87 59 1,009 44 36 87 NOTE. See table 1, notes 1-4. cards extensively, and a large proportion of ACH payments are undoubtedly made by businesses and governments. To estimate an upper bound for retail noncash electronic payments made by households, assume that households made all debit and credit card payments in 2000 and were the payers for half of all ACH payments. Under these assumptions, the average number of retail electronic payments per household per month in 2000 would have been about twenty-one (chart 3), or slightly more than half the retail noncash payments per household per month in 2000. For purposes of comparison, assume that in 1979, households made all retail electronic payments but half of all check payments. Under these assumptions, the average number of retail electronic payments per household per month would have been about six, or about one-fourth of the retail noncash payments made per household per month in 1979; check payments would have accounted for the other three-fourths (about seventeen per household per month). Although the number of checks written per household increased from 1979 to 2000 (in part because the number of households with some type of checking account increased), electronic payments per household as a proportion of retail noncash payments increased more than checks. The apparent increase in the share of retail electronic payments suggests that consumer checks have been replaced by electronic payments to some extent. The increase in the estimated number of checks written per household per month, however, suggests that further growth in electronic payments could occur through the replacement of some consumer checks. [note: ACH payments made by households, but research suggests that the share is about half. Of those household payments, about 40 percent are ACH debits—mainly prearranged payments (authorized by households and initiated by business recipients) that households have traditionally made by check, such as payments of recurring obligations to mortgage, insurance, and utility companies. The other 60 percent are ACH credits—mainly payroll payments from businesses to households but also some payments by households. See Vantis International, "Market Analysis and Segmentation for Direct Deposit and Direct Payment among Consumers, Businesses, and Financial Institutions'' (1998).[endofnote.] Payments by Businesses and Governments. The use of electronic payments by businesses and governments has also increased since 1979. Many businesses have adopted direct deposit of payroll, for example. The proportion of payroll payments made via direct deposit rather than paper check increased from close to zero in 1979 to about 50 percent in 2000. Some businesses have also begun to experiment with programs for converting checks to electronic payments at point-of-sale locations and for the processing of bill payments. In addition, a number of businesses are seeking ways to combine electronic payment processing with invoicing, which could reduce the number of check payments. The U.S. Department of the Treasury now makes most of its payments using the ACH (chart 4) (though federal government payments constituted only about 1.5 percent of all retail noncash payments in 2000). Large-Value Payments. In addition to the retail payments that are the focus of this article, some very large payments, including federal government and business payments once made by check, are now made using large-value funds transfer systems. Increased use of these systems helps explain the decline in the average value of checks from $1,544 in 1979 to $925 in 2000. Relative to retail noncash payments, payments made using these systems are few in number but tend to be large in value. From 1979 to 1995, the rate of growth of large-value payments by number (table 8) was similar to that for retail electronic payments (table 2). From 1995 to 2000, however, the number of retail electronic payments grew more than twice as fast as the number of payments processed by the largevalue funds transfer systems. Some payments made using large-value funds transfer systems replaced some larger-value business and government payments made by check, and this switch apparently had a significant effect on the real value of check payments over time. One largescale change in business practices that motivated the replacement of some large-value checks was the switch to same-day funds for the settlement of trades between securities dealers in the U.S. equities markets in 1996. NONCASH PAYMENTS IN OTHER COUNTRIES. A look at noncash payments in other 17]. countries proNational Automated Clearing House vides some perspective on the use of checks and electronic payments in the United States. Compared 18]. For more on federal government payme with other industrialized economies—Japan, the European Monetary Union (EMU), the United Kingdom, and Canada—the number of noncash payments of any type per capita is considerably higher in the United States, as is the number of check payments Chart 4. Number of retail payments initiated by the U.S. Treasury, per capita (chart 5). The number of electronic pay1979-2001 ments per capita is also higher in the United States, [graph plotting three lines: ACH725 payments, check and total. In 1979They ACH payments were about 150payments, million, Check payments were about million, total wasmillion, about 875 million. move in relatively straight lines, in 1989 ACH reaches about 450 million, check about 550 total about 1000 million. In 2000 ach was about 825 million, check about 250 million, total about 1075 million. though not substantially so. Detailed data (not shown) In 2001 ach about 900 million, check 350 million, totalwas about 1250 million.] indicate that the number of electronic payments per capita in some countries of the EMU, such as Finland, Germany, and the Netherlands, is higher than in the United States (similarly, the use of electronic payments may be greater in some regions of the United States than in others). [note: International, " M a r k e t Analysis and Segmentation for Direct Deposit and Direct P a y m e n t ' ' (1998).[endofnote.] [note: and Stephen E. Thompson, ''The Federal Reserve Banks as Fiscal Agents and Depositories of the United States,'' Federal Reserve Bulletin, vol. 86 (April 2000), pp. 2 5 1 - 5 9 .[endofnote.] The number of noncash payments per capita is higher in the United States than in the other economies mainly because of the more extensive use of checks. Given the very low level of noncash pay[note: NOTE. The 2001 uptick in check payments was due to the midyear tax refund payment sent to almost 100 million taxpayers as prescribed by the Economic Growth and Tax Relief Reconciliation Act of 2001. The U.S. Treasury also makes a small number of payments using other mechanisms such as Fedwire. transfer systems, such as Fedwire, are low in value compared with the average ($3.8 million). In fact, about one-fourth of Fedwire payments in 2000 were for amounts less than $4,000. The median Fedwire payment was $30,000, the 75th percentile was $183,000, and the 95th percentile was $5.1 million.[endofnote.] Table 8. Number, value, and rate of growth of large-value funds transfer payments, selected years Growth Item 1979 1995 Growth (percent, annual (percent, annual 2000 rate):1995-2000 Number (millions) Value (trillions of dollars) 45.9 126.9 186.6 581.5 NOTE. Includes Fedwire fund transfers and fund transfers processed by the Clearing House Inter-Bank Payment System (CHIPS). rate): 1979-2000 168.1 6.6 5.8 6.4 671.9 7.4 2.9 6.3 SOURCES. Federal Reserve and CHIPS. lion in 1979 to 49.5 billion in 1995 but declined to 42.5 billion in 2000. These three estimates are highly suggestive, though not conclusive, evidence that the total number of checks paid per year peaked in the 1990s. Despite the apparent decline since 1995, the number of checks paid remained higher in 2000 than in 1979. The estimated value of checks paid declined from $50.7 trillion in 1979 to $39.3 trillion in 2000, suggesting that electronic payments have increasingly replaced larger-value checks. Moreover, although the real value of transaction deposits declined slightly SUMMARY AND CONCLUSIONS. from 1979 to 2000, the decline was not as great as the decline in the value of checks paid, a further suggesStatistical estimates indicate that the number of tion that electronic payments originated from transchecks paid in the United States rose from 32.8 bilaction deposits likely replaced check payments. [note: 20]. vary S o m e r among esearchers The number and value of checks paid n u m b e r o f p a y m e n t s b y c a s h w a s l o w e r in t h e U n i t e d States t h a n in institutions in interesting ways. The average value o t h e r c o u n t r i e s . See D i a n a H a n c o c k a n d D a v i d B. H u m p h r e y , ' ' P a y of checks paid, as well as the intensity of check use, m e n t T r a n s a c t i o n s , I n s t r u m e n t s , a n d S y s t e m s : A S u r v e y , ' ' Journal of Banking & Finance, vol. 2 1 ( 1 9 9 8 ) , p p . 1 5 7 3 - 6 2 4 .[endofnote.] differs by type and size of institution, reflecting in part the types of customers served. Differences also Chart 5. Number of noncash payments per capita in one year, exist according to geographic region. Generally, the selected economies per capita value of checks paid is highest in the Northeast, and the number of checks paid per capita is highest in the Midwest. In addition, the number of checks paid per capita apparently is greater in rural [bar graphand plotting two data: checks and electronic payments. In Japan they have about 25 electronic areas than in urban areas. payments 2 checks. E.M.U. haveU.K. about electronic payments and 22 checks. has100 about 120 electronic payments andand 50 Canada has about 125 payments 50 checks. U.S. has about 130 electonic electronic payments andchecks. about 150 checks.] Although the number and value of checks may have begun to decline, it appears likely that checks will continue to play a significant role in the U.S. payment system, particularly when electronic payments are not well suited for meeting consumer or business needs. U.S. authorities have generally relied on market forces to provide new payment products and services. In this environment, the fact that checks are still widely used suggests either that checks are an efficient means of payment for many purposes NOTE. Includes both retail payments and payments made using large-value relative to alternatives or that barriers to innovation funds transfer systems. Data for United States are for 2000; for France, 1998; are inhibiting the development of alternatives. The for others, 1999. The European Monetary Union includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Netherlands, Federal Reserve has emphasized the need for the Portugal, and Spain. public and private sectors to identify any such barriSOURCE. European Central Bank, "Blue Book: Payment and Securities Settlement Systems in the European Union"; Bank for International ers and to work to reduce or eliminate them when Settlements, "Statistics on Payment Systems in the Group of Ten Countries"; doing so is in the public interest. and Federal Reserve. ments per capita in some countries, it seems likely that cash is used more extensively in these countries than in the United States. If that is true, measures of the importance of checks as a share of noncash payments may overstate the relative use of paper-based payment instruments in the United States. Without reliable measures of cash use, however, a comprehensive comparison across countries of the extent to which electronic payments have replaced paper-based payments (mostly cash and checks) is not possible. h a v e a r g u e d t h a t in t APPENDIX: DATA SOURCES AND METHODS OF ESTIMATION. Described in this appendix are the surveys that provided the data analyzed in this article. Also described are methods used to estimate the total number and value of checks for 2000, 1995, and 1979. 2000 Data. The most recent data were collected through a set of three surveys sponsored by the Federal Reserve and known collectively as the Retail Payment Research Project. The three surveys were • Depository Institution Check Study—Survey of a stratified random sample of insured commercial banks, credit unions, and savings institutions in the United States to estimate the number and value of checks paid in 2000 from data for March and April 2001 • Check Sample Study—Survey of individual checks submitted for collection by a stratified random sample of depository institutions during 2000 to characterize check payments in that year in terms of payer, payee, and purpose • Electronic Payment Instruments Study—Survey of the universe of electronic payment networks, card issuers, and third-party processors to estimate the number and value of retail electronic payments originated in the United States in 2000. Covered in the survey were credit cards (both general-purpose and private-label cards), debit cards (both on-line cards, which are used by entering a personal identification number, and signature-based cards, which generally involve signing a receipt), and ACH transactions. The collection of data on electronic payments was straightforward because the processing of electronic payments is largely centralized. Credit and debit card second surveys, and Dove Consulting assisted with the third. The preliminary results of the three surveys were announced in November 2001. A complete description of the project is available at the Federal Reserve Financial Services web site (www.frbservices.org) under the topic Key Initiatives.[endofnote.] insured transaction deposits held at these types of institutions. Depository institutions serve as paying banks for checks written by the customers of nondepository institutions, such as checks written against money market and mutual fund deposit accounts with check-writing privileges.[endofnote.] transactions are processed through a small number of networks, and payments flow through these networks, even if the payer and payee are customers of the same bank. Because more than one network can process the same payment, double counting could have been an issue. To avoid this potential problem, the networks were asked to report only those payments that were originated on their own network. The check-clearing system is far less centralized than the electronic payments processing system. Checks are paid by several types of institutions— commercial banks, credit unions, savings institutions, and U.S. branches of foreign banks. To obtain payment for a check, the depository institution into which the check is first deposited, usually the payee's bank, must present it to the paying bank. Presentment commonly requires that the check be physically delivered to the paying bank to receive payment (though presentment can be made electronically if the paying bank agrees). Presentment can be done directly or through an intermediary such as a correspondent bank, a clearinghouse, or a Federal Reserve Bank. Although the number and value of checks collected by the Reserve Banks each year are known, the number and value of checks presented directly or through other intermediaries are unknown. Because such data are not included in reports filed by depository institutions, they must be estimated on the basis of surveys. Sample design and methods of estimation are described below. Estimation of the Number and Value of Checks Paid. The number and value of checks paid, the share of on-us checks, and the number and value of returned checks for 2000 were estimated using data from the Depository Institution Check Study. In this study, the surveyed depository institutions were instructed to report only those checks paid on behalf of their own customers and to exclude checks that they collected on behalf of other depository institutions. To account for checks written on money market and other [note: 21]. Global accounts at brokerages, respondents were instructed to include in their figures the checks they settled on behalf of those nondepository institutions. Sample [note: design. Whether checks are written on tradi22]. Almost tional checking accounts provided by depository institutions, on accounts provided at brokerages or other nondepository institutions, or are money orders, cashiers checks, rebate checks, or travelers checks, Concepts, Inc., all checks in they are generally paid by depository institutions. The population of depository institutions from which the sample was drawn encompassed commercial banks (including branches of foreign banks), credit unions, and savings institutions. Depository institution subsidiaries of multibank holding companies were treated as a single institution. Depository institutions in the population that had transaction deposits at the close of business on September 30, 2000 (June 30, 2000, for credit unions), were grouped by type—commercial bank, credit union, or savings institution—and stratified by value of transaction deposits (excluding the transaction deposits of other banks and the U.S. government), as reported to federal depository institution regulators. The sampling procedure was designed to achieve 95 percent confidence intervals no larger than ±5 percent of the size of the estimates of total number and value of checks paid. Six strata were defined for commercial banks, five for credit unions, and three for savings institutions. The boundaries of the strata and the probability of selection for institutions in each stratum were set to maximize the precision of the estimates of the number and value of checks. Because transaction deposits are concentrated in the largest institutions, the probability of an institution's being sampled increased with the value of its transaction deposits, although the probability of selection was the same for all the institutions in a given stratum. Using the assumption of a response rate of 65 percent or greater, 2,365 depository institutions were sampled. The probability of selection for the largest 533 commercial banks, 104 credit unions, and 40 savings institutions was 100 percent. There were 1,256 valid responses for the number and value of checks; 1,011 valid responses for the share of on-us checks; and 1,036 valid responses for the number of returned checks. For the total number and value of checks, the overall response rate was about 53 percent. In part because response rates were higher for strata with larger depository institutions, the desired precision was achieved for the estimate of check number; it was not, however, for the estimate of check value. Estimation. To improve the accuracy of the estimates, the strata used for estimation were updated using transaction deposit information for the population of depository institutions with transaction deposits at the close of business on March 31, 2001 (December 31, 2000, for credit unions) (14,696 institutions). For the final estimation, commercial banks were grouped into seven strata, credit unions into six, and savings institutions into four. Check figures were annualized by summing the figures for March and April 2001 and multiplying by six. For simplicity, these annualized figures were assumed valid for 2000, an assumption supported by data on Federal Reserve check collections: The number of checks collected by the Federal Reserve Banks, which may track total checks for short intervals, declined slightly but was relatively flat between 2000 and 2001. The annualization factor implied by the number of checks collected by the Reserve Banks would have been slightly smaller than six because check collection volume in March and April tends to be higher than in other months. Estimates of the number and value of checks were based on separate ratio estimators for each stratum using transaction deposits as the covariate. (Within a stratum, the amount of transaction deposits was highly correlated with the number and value of checks reported by the responding institutions.) The estimate of total number (or value) of checks paid by depository institutions was equal to the sum of the estimates for the strata. Data on the number (or value) of U.S. Treasury checks and postal money orders paid in 2000 were added to that estimate to obtain the estimated total for 2000. The precision of the estimates is characterized by the 95 percent confidence intervals reported below. Confidence intervals were computed by multiplying ±1.96 by the sampling standard errors. The sampling standard errors reflect the variability within the sample data as well as the number of survey responses. The estimates reported in this article for the number of checks paid in 2000—42.5 billion (95 percent confidence interval of 40.9 billion to 44.1 billion)— and the value of checks paid in 2000—$39.3 trillion (95 percent confidence interval of $36.9 trillion to $41.8 trillion)—are revised from preliminary estimates released in November 2001. Estimation of the Number and Value of Checks Paid by Location of Deposits. Although the survey of depository institutions was not explicitly designed to facilitate a comparison of check use by geographic region, sufficient responses were received to make such a comparison possible. For each of four regions—Northeast, South, Midwest, and West—separate estimates of the number [note: identified during the preparation of this article.[endofnote.] and value of checks paid were made for single-region institutions (those having deposits in only one region) and multiregion institutions (those having deposits in more than one region). For multiregion commercial banks and savings institutions, checks and transaction deposits were allocated to regions according to the proportion of the institution's total deposits in each of the regions. The allocation method assumed that within these institutions, the ratios of transaction deposits to total deposits, check number to transaction deposits, and check value to transaction deposits were constant. Information on the location of deposits at credit unions and branches of foreign banks was unavailable, and data for these institutions were assigned to the state in which the head office of the depository institution was located. Except for several of the largest credit unions (about ten), most of these institutions operate within the boundaries of a single state. To produce the regional estimates, institutions were stratified first by region and then by type and size. For each region, the strata were constructed by separating institutions into multiregion and single-region, type, and size categories, with strata boundaries selected according to an approximation to Neyman allocation. New ratio estimators were produced using these strata, following the procedure described in the preceding section. About 138 institutions had branches in more than one of the four regions. (These institutions paid about 40 percent of all checks and accounted for just over 40 percent of transaction deposits.) For each of these multiregion institutions, prior to estimation, transaction deposits and check data (number and value of checks) were allocated to regions in proportion to the location of their total deposits. Allocating transaction deposits according to total deposits assumes that, for the institutions in the sample, transaction deposits and checks are in the same proportion to total deposits for every region. This allocation method appears reasonable for the construction of an aggregate regional estimate but may not hold true for some institutions. Whether large regional differentials in this proportion for some very large institutions would weaken or strengthen the apparent regional differences reported here is unclear. Joseph L. Hodges, "Minimum Variance Stratification,'' Journal of the American Statistical Association, vol. 54 (1959), pp. 88-101.[endofnote.] regional estimates for commercial banks and savings institutions were about the same as those obtained from the original study but were slightly more precise. The increased precision appears to have been a result of additional homogeneity among the institutions in the resulting strata.[endofnote.] Estimates of urban and rural check use were constructed using a method similar to that used to construct estimates by region. Urban areas were defined as metropolitan statistical areas (MSAs) and New England county metropolitan statistical areas (NECMAs), and rural areas as all other areas. Characterization of Checks by Payer, Payee, and Purpose. The survey of individual checks was intended to gather information about the shares of checks written by and received by businesses, consumers, and governments and the purposes of the payments. Data were collected on almost 30,000 checks from nearly 150 depository institutions. A two-tiered sample design was used to collect a representative sample of checks. First, a stratified, random sample of depository institutions was generated from the population of commercial banks, savings institutions, and credit unions. Then each selected institution was asked to retrieve a random sample of the checks it collected in 2000, using its internal records. The number of checks provided by an institution was in proportion to the amount of its transaction deposits. For each sampled check, the institution recorded certain objective characteristics useful in determining the type of payer and payee and the purpose of the payment. The institution also recorded a subjective assessment of the type of payer and payee—information that was used later to verify the validity of the categories assigned using the objective characteristics. To protect privacy, the institutions did not provide information that could be used to specifically identify the payer or payee. For the reported figures, separate ratio estimates for the strata were summed to produce an estimate for the population. 1979 Data. The 1979 data were collected in a survey conducted in that year by the Federal Reserve Bank of Atlanta and cosponsored by the Reserve Bank, the American Bankers Association, and the Bank Administration Institute. The estimates of the number and value of [note: 24]. The approximation met checks for 1979 were produced from separate ratio estimates of the total number of checks reported by a [note: 25]. The national estimat stratified sample of 343 banks. [note: of the Check Collection System: A Report of Research Findings on the Check Collection System'' (1980).[endofnote.] 1995 Data. The 1995 data were collected in a survey conducted in 1996 for a report to the Congress on funds availability and check fraud. The estimate of number of checks paid was based on the sum of two figures requested in the survey questionnaire: number of checks paid during 1995 that had been received from other institutions and number of checks paid during 1995 that were on-us checks. The survey provided information on checks paid by a random sample of depository institutions. On the basis of 606 valid responses, Board staff produced, for this article, an estimate of the number of checks paid in 1995 for comparison with the estimates for 1979 and 2000. The definition of the amount of transaction deposits was the same as that used for the 2000 estimates. [note: Congress on Funds Availability Schedules and Check Fraud at Depository Institutions'' (Board of Governors, 1996).[endofnote.] Unlike the 2000 estimate, the population in this study was defined as individually chartered depository institutions. For the estimation of the number of checks paid, the population of depository institutions was stratified using the value of transaction deposits in December 1995, with optimal strata boundaries set using an approximation to Neyman allocation as described above. Seven strata were defined for commercial banks, three for credit unions, and three for savings institutions. The estimate of the total number of checks paid by depository institutions was equal to the sum of separate ratio estimates for the strata. The number of U.S. Treasury checks and postal money orders paid in 1995 was added to that estimate to obtain the estimate of the total for 1995. The estimate was 49.5 billion (95 percent confidence interval of 44.3 billion to 54.8 billion). The estimate for 1995 was higher than the 2000 estimate, and the difference Governors was statistically significant, showing 27]. thatBoard the ofdifference is unlikely to be due to sampling error. of the Federal Res